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Tyler Wilcox

Thank you, Nick. Good morning, everyone, and thank you for joining our call today. Our fourth quarter diluted earnings per share was $0.76 and was $3.31 for the full year of 2024. As we look at 2024, I want to note some key takeaways. Our net interest income improved 3% compared to 2023, and our net interest margin continued to outperform most in our industry at 4.21%.
Fee-based income grew 10%. Our efficiency ratio stood at 58%. Our book value per share improved 5% to $31.26 [ and our ] tangible book value per share grew 10% to $19.94.
We had a favorable shift in the mix of our Loan portfolio as our Commercial and Industrial Loans grew relative to our Commercial Real Estate portfolio. Our Commercial and Industrial Loans increased $163 million, growing from 19% to 21% of our portfolio, as Commercial Real Estate Loans declined from 36% to 34% from 2024 to 2023. Our loan-to-deposit ratio declined to 84% compared to 86% at December 31, 2023. Our criticized loans improved to 25% of our total risk-based capital at year-end compared to 27% for 2023, demonstrating the stability of our Commercial Loan portfolio.
We had deposit balance growth of $443 million or 6% compared to 2023. Our tangible equity to tangible assets ratio improved to 8.01% at year-end compared to 7.33% for 2023 and we continue to beat consensus diluted EPS estimates, which were $0.75 for the fourth quarter and $3.30 for the full year of 2024.
As far as our credit quality at year-end, our overall allowance for credit losses was 1% of total loans. Our provision for credit losses declined for the fourth quarter, as we had a reduction in individually analyzed loan reserves which was partially offset by charge-offs for the fourth quarter. Our annualized net charge-off rate was 61 basis points for the quarter compared to 38 basis points for the linked quarter.
This was driven by our leasing charge-offs, which comprised 49 basis points of the quarterly rate.
For the full year, our net charge-off rate was 37 basis points compared to 15 basis points for 2023. Our Leasing business drove 22 basis points of the annual rate for 2024. We have provided guidance in the previous two quarters regarding the elevated charge-offs in our small ticket leasing business, and last quarter guided to an anticipated peak of these charge-offs in the fourth quarter.
We took an aggressive approach with these credits during the fourth quarter, which drove the higher net charge-off rates as collection strategies brought some of the charge-offs forward into the fourth quarter. While improvements from the fourth quarter peak are expected, we anticipate a gradual decline towards our expected charge-off rate of 4% to 5%.
We had reserves established on many of these credits during the previous quarters, which reduced the impact [to] provision for credit losses during the fourth quarter. To provide some perspective on our small ticket leasing over the two-year period prior to 2024 and net charge-offs within the portfolio went from around 1.5% to our current rate of 6.7%.
Historical net charge-off rate, the average historical net charge-off rate for small ticket leasing was around 4.5% prior to our ownership. Going forward, our strategy with this business continues to be, to seek origination yields between 18% and 20% with net charge-offs in the 4% to 5% range. We expect that the adjustments we have made in origination and credit focus are returning us to the average historical net charge-off levels.
For more information on our small ticket leasing business, please refer to our accompanying slides.
Our non-performing assets declined $21 million and were 0.53% of total assets at year-end. We noted last quarter, during our call that we had administrative past due lease accounts and premium finance accounts for which we were awaiting expected proceeds from carriers on canceled policies.
The majority of those cleared up in the fourth quarter, and our non-performing asset levels were back in a normal range at year-end. Criticized and Classified loans were relatively similar to levels at the end of the third quarter. Our delinquency improved compared to the link-quarter-end, as the portion of our loan portfolio considered current at year-end was 98.7% compared to 98.5% at September 30.
As it relates to our loan portfolio concentrations, we had no material changes during the fourth quarter. Our total investment commercial real estate exposure at year-end was 36% of $4.6 billion in our Commercial Loan portfolio and declined to 183% of our total risk-based capital. We continue to be pleased with our multifamily portfolio metrics, which declined to $562 million or 8% of total loans at year-end.
These loans are focused on quality metropolitan areas that are within our core markets. Collectively, these metropolitan areas experienced average annualized rental rate growth of 3.1%, job growth of 1.25%, median household income growth of 3.1% and population growth of 0.93%.
We continue to have minimal exposure in specific lending concentrations, including land development, which comprised 1.4% of total loan balances at year-end, office at 1.7% and hospitality at 2.7%.
As far as loan balances, we had 5% annualized loan growth during the fourth quarter. Our Commercial and Industrial Loans were up over [$97] million, while our residential real estate loans were up $57 million compared to the linked quarter end.
Our commercial real estate balances declined $24 million, which was the result of payoffs and sales within the portfolio -- which outpaced new loan growth. Our lease balances declined at $26 million due to lower originations during the quarter, coupled with charge-offs in our small ticket leasing business.
At quarter end, our commercial real estate loans comprised 34% of total loans. Nearly 40% of which were owner-occupied while the remainder were investment real estate. At year-end, 47% of our total loans were fixed rate with the remaining 53% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.

Kathryn Bailey

Thanks, Tyler. For the fourth quarter, net interest income declined 3% compared to the linked quarter and was driven by lower accretion income. Net interest margin was 4.15% compared to 4.27% for the third quarter. The compression in net interest margin was driven by lower accretion income, which totaled $4.9 million and added 23 basis points to margin for the fourth quarter compared to $8.1 million and 39 basis points for the linked quarter.
On a core basis, excluding the impact of accretion to the third and fourth quarters, we had net interest margin expansion of 4 basis points. During the fourth quarter, we were able to reduce our interest-bearing deposit costs by 6 basis points, as we saw lower rates on all of our deposit categories during the quarter. We also fully paid off our borrowing from the Bank Term Funding Program, which contributed to the reduction in our short-term borrowing costs.
For the full year, net interest income increased 3% and while net interest margin declined 34 basis points. As we have mentioned previously, our decline in net interest margin compared to 2023 was mostly due to the timing of our deposit cost increases occurring slower than the repricing of our loans to higher rates.
From an interest rate risk perspective, we are in a generally neutral position. Our net interest income profile is robust and is relatively insensitive to changes in interest rates. Moving on to our fee-based income. We had growth of 5% compared to the linked quarter. This increase was driven by higher commercial loan swap fees which were up nearly $1 million and was partially offset by declines in mortgage banking income.
For the full year, fee-based income grew 10% and was the result of improved lease, trust and investment and insurance income, as well as the full year impact of the Limestone merger.
During the fourth quarter, we recognized a $1.2 million loss on an other real estate owned property, which is included in our non-performing assets. This loss is recognized based on a recent appraisal received regarding the property value. As it relates to our net interest expenses, we had an increase of 7% compared to the linked quarter.
The majority of this increase was in other non-interest expenses due to higher non-core expenses, coupled with reductions in corporate expense recognized last quarter. For the full year, non-interest expense was up 3%, as we experienced higher operating costs from the additional footprint from Limestone which was partially offset by lower acquisition-related expenses during 2024.
For the fourth quarter, our reported efficiency ratio was 59.6% and was up compared to 55.1% for the linked quarter. Our improvement in fee-based income for the quarter was outpaced by lower net interest income and increased non-interest expense resulting in the higher efficiency ratio compared to the linked quarter. For the full year, our reported efficiency ratio was 58% an improvement compared to 58.7% for 2023 due to lower acquisition-related costs in 2024.
Looking at our balance sheet at year-end. Our loan-to-deposit ratio was flat compared to the linked quarter end and stood at 84% for both periods. We had growth in our investment portfolio during the quarter, as we locked in some higher yields and longer duration putting those investments into our held-to-maturity securities.
As noted in our accompanying slides, we had growth in our deposits during the quarter, which were up $112 million compared to September 30. Our noninterest-bearing deposits grew considerably, while our interest-bearing transaction accounts also increased.
At the same time, our governmental deposits declined compared to September 30.
As we have noted previously, these deposits are seasonally higher during the first and third quarter of each year. Our retail CDs grew compared to the linked quarter end, while our brokered CDs also increased as part of our funding strategy.
As we have mentioned before, we view brokered CDs as an additional funding source and they have been available at a rate lower than FHLB (inaudible) in recent periods. We expect our deposit cost to continue to decline as they did for the fourth quarter. Our CD specials at year-end 2024 were around 4% compared to between 4.75% and 5.25% at year-end 2023.
While the Fed funds rate increased 4.25% from the fourth quarter of 2021 through year-end 2024, our deposit rates only increased 1.8% over the same time period. Our demand deposits as a percent of total deposits were 34% at quarter end and were consistent with the linked quarter end. Our noninterest-bearing deposits grew to 20% of total deposits at quarter end compared to 19% for the linked quarter end.
At year-end, our deposit composition was 79% in retail deposit balances, which included small businesses, and 21% in commercial deposit balances. Our average retail client deposit relationship was $26,000 at quarter end, while our median was around $2,500.
Moving on to our capital position. Most of our capital ratios improved compared to the linked quarter and benefited from earnings outpacing dividends. Our tangible equity -- the tangible assets ratio declined to 8% compared to 8.3% at September 30 and was due to increases in our accumulated other comprehensive losses related to our available-for-sale investment securities.
Our book value and tangible book value continue to improve and were up 5% and 10%, respectively, compared to December 31, 2023. While managing our capital levels, we continue to provide a high yield of return to our shareholders with a current dividend yield of 5.11%.
Finally, I will turn the call over to Tyler for his closing comments.

Tyler Wilcox

Thank you, Katie. As we move into 2025, I'd like to reflect on some of our achievements during 2024. We continue to be recognized as a top employer by many publications, allowing us to attract and retain top talent. We contributed to our communities in meaningful ways, including donations, volunteering and through our scholarship programs. These activities are key to our market presence and competitiveness within our markets.
We continue to leverage the investments we have made to prepare to surpass $10 billion in assets. We were recognized as being in the top 15% of banks nationally in the Small Business Administration 7(a) approved loans. We are reiterating our guidance for the full year of 2025, which excludes non-core expenses. We expect to have positive operating leverage for 2025 compared to 2024. We expect to have improvement in our return on average assets for 2025 compared to 2024.
Assuming an additional 50-point basis -- assuming an additional 50 basis point reduction in rates from the Federal Reserve during 2025 -- spread over the first nine months of the year, we anticipate a stabilization in our net interest margin of between 4% and 4.2%.
In our projections for 2025, each 25 basis point reduction in rates results in a nominal impact of 1 or 2 basis points to net interest margin. We believe our fee-based income growth will be in the mid- to high single-digit percentages compared to 2024.
We expect quarterly total noninterest expense to be between $69 million and $71 million for the second, third and fourth quarters of 2025 with the first quarter of 2025 being higher due to the annual expenses we typically recognized during the first quarter of each year. We believe our loan growth will be between 4% and 6% compared to 2024. We anticipate provision for credit losses to be similar to our 2024 quarterly run rate for 2025.
We also expect our net charge-off rate for the full year of 2025 to be modestly lower than the rate we experienced for the full year of 2024.
This concludes our commentary, and we will open the call for questions. Once again, this is Tyler Wilcox, and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our call facilitator. Thank you.

Question and Answer Session

Operator

We will now begin the question-and-answer session to ask a question. (Operator Instructions)
Brendan Nosal, Hovde Group.

Brendan Nosal

Hey, good morning folks. I hope you're doing well.

Tyler Wilcox

Hey Brandon, good to, good to hear from you.

Brendan Nosal

Maybe just to start off on loan growth. I was just kind of curious, what was the driver of the divergence between end of period and average for the quarter. I mean it seemed like the period end number was quite healthy, but the average was down a bit. I'm just kind of curious, is that timing or were there payoffs earlier in the quarter that dragged down the average? Any color there would be helpful.

Tyler Wilcox

Brendan, just so I understand your question, kind of relative to the first three quarters, is that what you're asking? Or --

Brendan Nosal

I mean, I guess if I look at average loans, they were down a couple of percent annualized for the quarter, whereas end of period was up 5% or 6% annualized for the quarter.

Tyler Wilcox

Got it. Yes. I think it was timing and December production was just -- a lot of our borrowers getting their deals done in December, mostly a timing issue. But I would say demand continues to be strong across all of our portfolios as well.

Brendan Nosal

Okay great. Then maybe turning to the deposit base. I get that you guys have a much more retail-oriented base than others. But just kind of curious how long you think it takes for you to get more beta out of that deposit base and kind of the timing on that to squeeze more of that 100 basis points out of the Fed on to your own pricing?

Kathryn Bailey

Yes. I mean, I think we started a little ahead of the Fed cutting in September, and we have been actively managing it through the cycle of the fourth quarter and we'll continue to do so into the first quarter, even if no rate cuts are experienced in the first quarter.

Brendan Nosal

Okay, perfect. Maybe one last one for me. Just on asset quality, broadly and, I guess, especially outside of the leasing book. I mean, numbers outside of leasing look really, really solid. So I'm just curious what you're seeing more broadly on both commercial and consumer credit trends?

Tyler Wilcox

Yes. Thanks for the question, Brendan. A couple of thoughts. I agree with you. The asset quality overall, the kind of 97% of that portfolio is incredibly strong.
We saw -- as we said last quarter, we saw kind of a reduction to norms in nonperforming assets and the delinquency rates our positive trend. The criticized classified as a percentage of capital is down. And the full contribution for the year in the commercial book was 2 basis points of charge-offs. We expect that credit quality to continue both because of the kind of diversity of the loan portfolio and the quality of our execution from a credit monitoring standpoint.
And in Consumer, we've talked this year about Consumer being kind of elevated from -- slightly from an incidence of charge-offs and in the indirect portfolio and then also from a value of each individual charge-off. We've seen a four-month trend of decline there in the charge-off rate.
So the fourth quarter charge-off rate came down about 30 basis points in the indirect portfolio. And just generally, the overall borrowing profile on the Commercial side is deploying those low-cost deposits into quality markets, as we mentioned. And so we feel a high degree of confidence in the overall portfolio.

Brendan Nosal

All right, fantastic. Thank you for taking the questions.

Kathryn Bailey

Thanks Brandon.

Operator

Tim Switzer, KBW.

Tyler Wilcox

Hey, good morning.

Tim Switzer

Thank you for taking my question.

Tyler Wilcox

No, no problem. Great to hear from you, Tim.

Tim Switzer

Hey, good to hear from you guys. My first question is on -- with the 53% of loans that you guys set are variable rate. Can you remind us, is that all repricing quarterly? Or does some of that have a bit of a longer lag?

Kathryn Bailey

Most of it is monthly with a portion of it quarterly and a very small portion later than that -- the majority is monthly.

Tim Switzer

Okay. That's great. And then offsetting that, given you guys are pretty great neutral, can you review what your shorter-term funding sources are, particularly like on the deposit side? I know you have some CDs that are maturing over the course of the year --

Tyler Wilcox

That are probably help.

Kathryn Bailey

Right. Well, I'd say our retail CD book is pretty short in nature, I'd say, generally less than a year. Brokered deposits, again, as we stated in the call, we use those. But again -- [PO] is relatively short, 3, 6, 9 months, tenures, generally speaking. And then our primary sources and overnight funding source through the FHLB.

Tim Switzer

Okay, I got you. And you guys have been talking about [deposit a little] bit already, but could you provide some details on maybe like the customer response to you lowering deposit rates fairly broadly across your different sources there? And do you expect that to change at all with how Fed rate expectations have come up a little bit?

Kathryn Bailey

Yes. I mean I think we've started lowering our special rate CD prices and last step with the Fed, I mean, again, we were a little ahead of it. And we've been -- we haven't gotten quite all of it out of it just based on the repricing term of those. But we're still seeing some growth in that line item as you saw in the quarterly results. We haven't seen a big reaction from a customer attrition perspective.
I think we're still keeping it fairly competitive within the markets that we serve.

Tyler Wilcox

And yes, although we're largely retail focused there, we saw some healthy growth, for example, in commercial. So keeping up as well, so keeping up with the competition the results kind of speak for themselves in terms of how the clients are reacting.

Tim Switzer

Okay. Yes, that makes sense. And the last question for me, it might be a little early for this, but with the change in administration occurring yesterday. There's a lot of different puts and takes on kind of the macro outlook and the impact of tariffs and where rates will go. Are you seeing that result in any caution from some of your C&I borrowers at all?
Or maybe even the other direction in certain industries where they're a little bit more bullish. Has it impacted like your loan pipeline in any way?

Tyler Wilcox

Yes. I would -- as you say, there are some puts and takes. We certainly have some C&I-focused clients that may be impacted by tariffs. But overall, I would say, if you look at some of the national data, and it certainly tracks with what we are hearing collectively from our clients is there's a high degree of business optimism. I believe there was a huge spike in the kind of small business optimism index in the last few days.
And I think that's generally reflected throughout our markets. And so cautious optimism is how I would phrase it.

Operator

Terry McEvoy, Stephens.

Terry McEvoy

Good morning. Good morning, Katie. Just to maybe start over with a couple of small questions from the quarter. Could you just expand on the acquisition-related expense? I mean, Limestone closed almost two years ago, I was curious to see that pop up. And then just the swap fees, which you called out in the press, how much were those in the quarter? And is that taken into consideration in your 2025 outlook?

Kathryn Bailey

Yes. So as it relates to the acquisition cost, that is related to a legal contingency that represents the anticipated settlement of a lawsuit that we inherited with the Limestone acquisition. And then as it relates to the commercial loan swap fees, that was about $1.2 million for the quarter, compared to about $200,000 in the third quarter.
Again, that's all customer demand, and we've seen spikes like that in other times. I would say we don't necessarily anticipate each quarter in 2025 to be at the $1 million range, but we think that the year -- might land somewhere around that.

Terry McEvoy

And then a follow-up, maybe could you just -- the C&I growth was nice to see. Any specific markets or industries that contributed to the quarterly growth? And then whats the headwind do you expect from kind of CRE paydowns in 2025? Will you continue to manage down the leasing portfolio or North Star?

Tyler Wilcox

Yes. Let me take those sequentially. So on the C&I growth, I would say it was broad-based across all of our markets and no particular area that stands out, which is kind of what we like. Your second question was -- these compound questions -- I am slow, Terry.

Terry McEvoy

The CRE paydowns and runoff of leasing?

Tyler Wilcox

So CRE paydowns, we have about $350 million of CRE maturing in 2025. Obviously, we've kind of done a deep dive into that. As we talked about on previous calls, paydown activity has been heavier this year than it has been previously, particularly driven not just by permanent financing, but by sales.
But the sales market is very strong. And I think it's also a testament to the quality of the markets that we're in, that the sales demand as high as investors look to purchase, particularly those multifamily projects.
And then your question about North Star leasing -- or excuse me, small ticket leasing was what, remind me?

Terry McEvoy

Will you continue to manage down that portfolio. I believe in the past, you've talked about shrinking it and we did see some runoff in the fourth quarter.

Tyler Wilcox

Yes. At year-end, that stood at about $191 million, and that will likely decline notwithstanding. We expect originations to pick up a little bit. Yes. And just to give you a little bit of color on that overall, we believe the worst is behind us.
As we clean up the portfolio, there's still some work to do. So we're not returning just for clarity, we went from 1.5% charge-off to over 6% -- over 6% is too high, but under 4% was probably too low from a historical perspective, and we look to ramp back down over the year closer to that 4% net charge-offs. So that will continue a little bit of pressure on that portfolio size, while originations, we hope will pick up.

Operator

Daniel Tamayo, Raymond James.

Daniel Tamayo

Thank you. Good morning everyone.

Tyler Wilcox

Morning, Danny.

Daniel Tamayo

You guys have talked about this already, but maybe just a little bit more specifically, Katie, on the margin guidance, given the neutral balance sheet sensitivity and it seems like the goalpost of the [4% to 4.20%] will be driven by deposit repricing and payoffs perhaps.
Curious if that's kind of how you're thinking about it as well? And if so, is there like a range of betas on the way down that you think kind of fit those goalposts? Or just curious kind of how you were thinking about it in the budgeting process.

Kathryn Bailey

Yes. So just to be clear, the [$400 million, $420 million] does include accretion income as it has been historically for us. And as we've guided to in the past, we would anticipate that on a quarter -- the first half of the year, somewhere around 15 to 20 basis points, getting somewhere closer to and probably staying within that range for the full year, just slightly moving down that range as we proceed through the year.
And again, to your point, I think we will -- some of that is the insight we have into that is the deposit betas. We do expect to continue to see some reduction in those price -- or that cost for us, as we said, as we proceed through the first quarter, even if there are no Fed rate cuts in the first half of the year.
Again, we were -- as a reminder, and as we said in the call, we were slow to raise deposit rates. So you're seeing some of that -- it's a little bit of a lag to what the loan pricing has done over the cycle. So -- we're back on track to come down, but it's just slower than -- because we were still rising, I guess, when the Fed started cutting.

Daniel Tamayo

Got it. And then maybe just kind of high-level thought on credit. You sounded pretty bullish relative to where you've been. You've got the leasing book being cleaned up. I mean if you had to say there's one area that you think is the biggest risk to guidance in 2025 from a credit perspective?
Is it just kind of a longer tail on the leasing portfolio? Or you think it's now kind of moved beyond that and more focused on the typical Commercial and Consumer portfolios?

Tyler Wilcox

Yes. I think from a credit perspective, Danny, it depends on what rates and inflation do. That is probably one of the catalysts for the -- the increase that we saw in small-ticket-leasing because that's particularly -- has a little bit more of a concentration in start-ups and businesses that are a little bit more vulnerable.
Look, I think we will always have kind of the few ups and downs on the criticized and classified. And as you saw this year, one quarter up, one quarter down, but relatively stable, and consistent, and that's kind of what we expect at this point. So overall, just I think it's a high-quality diversified loan portfolio. And notwithstanding the small ticket leasing is that it ramps down towards the more realistically expected credit losses. I have a high degree of confidence in the overall portfolio.

Daniel Tamayo

Terrific. All right. Well, thanks for taking my questions, Tyler and Katie.

Tyler Wilcox

Thanks Danny.

Operator

Nathan Race, Piper Sandler.

Nathan Race

Hey, Tyler and Katie staying warm these days. Question just on kind of the trajectory for loan yields going forward within the context of the guidance you provided going forward. You know, assuming the fed is on hold at least in the next quarter or two. Just curious what you guys are seeing on terms of new loan pricing perhaps on a way average basis these days.

Tyler Wilcox

Yes. On a blended basis, we ended the year at -- make sure I get the number right, 7.14% yield across the entire portfolio, including loans and leases. Commercial has been positive up there at about 7.71% for the full year average.
And our Specialty Finance businesses drive that a little bit higher and our Consumer is a little bit lower. So we expect yields to remain strong, but we are also not following any competition when it goes into terms or rates that don't kind of comport with our expectations for the business.
And I think you'll see consistency there.

Nathan Race

Okay. Great. And just going back to credit, I appreciate the guidance around provisioning at a similar level relative to last year. And it sounds like, as you described, charge-offs, particularly in the leasing segment peaked in the fourth quarter. So just curious -- if you guys have any kind of goalpost minds in terms of where you want to see the reserve get back up to maybe by the end of this year relative to loans?

Kathryn Bailey

Yes. I mean I think the 1% -- one handle, I think, is a good place being an audited institution. But I think where we are now is reasonable, and we might tick up a few basis points. But I think historically, we've played in that 1 to 1.1, 1.25, and so I would expect we would stay within that range for '25.

Tyler Wilcox

Assuming the forecast continues kind of as is from an economic perspective, our provision has some factors in it relative to unemployment and so forth that can drive the formulaic results. But I think it's been consistent over the years, as Katie mentioned.

Nathan Race

Got it. Just a housekeeping question on the accretion income expectations for this year. Any thoughts on what we can expect maybe in terms of accretion income in 2025?

Kathryn Bailey

Yes, from a basis point perspective, I think we will be in that 15 to 20. We'll start the year at the high end of that. And end the year at the low end of that -- that's assuming kind of a normal expectation for payoffs. But I'd say $10 million to $15 million in accretion income for '25 is probably in the range of expectations.

Nathan Race

Got you. One last one for me. Just be curious to hear if you guys are seeing any increase or feeling any increased optimism on the M&A front in light of everything that's unfold over the last 90 days or so? And -- just curious what you're seeing in terms of the number of partners you're talking to and just the overall magnitude of some of those conversations?

Tyler Wilcox

Yes. Nate, thank you. As -- there's -- I think there's a lot of conversations going on as you know about us that we are very active in the space, talking to potential partners, and that continues to be the case. I would say that there's optimism out there. The discussions I have is there's a lot of optimism among the larger regionals that they may see a window, and we would be poised just as an aside to take advantage of the combinations of larger banks that often causes customer client disruption and community disruption that we're well poised to take advantage of and to recruit talent.
But that wasn't really your question. So I would say, yes, a lot of active conversations. We're optimistic, but we continue to kind of reach for ourselves and to potential partners that strategic patients. We have a mild preference still for the kind of larger deal to take us over 10. And we've kind of been active in passing on opportunities that don't fit strategically or from a size perspective, and we'll continue to do that.
But if the right opportunity comes along, soon, we'll take it. And if it doesn't come along in any immediate time line, we'll be fine because we have headroom. So we remain kind of poised to be opportunistic is what I would say.

Nathan Race

Okay, great color. I appreciate it. Thank you.

Kathryn Bailey

Thank you.

Operator

Manuel Novas, D.A. Davidson.

Manuel Navas

Hey, good morning. Just -- more big picture more big picture. What do you see as the biggest wildcard to that positive operating leverage target for next year positively or negatively?

Tyler Wilcox

Well, I -- the potential for outsized loan growth is a possibility, and that would certainly drive some positive result for us. I feel positive about kind of our expense control going into the next year. So I don't see that as a real potential risk.

Kathryn Bailey

No. I mean I think we feel good about our deposit base. We think that's one of the attractive features of this institution. Rate environment, again, we said we're relatively asset neutral or neutral to interest rates, but we'll see what happens from the Fed perspective, I think, right now. That's different than where we were six months ago.
So it's likely to change, but I think we feel good about where we sit today but that's just something out of our control that we'll continue to monitor and manage.

Tyler Wilcox

Yes. I think the threats are more external -- where there to be a recession or economic downturn or persistent inflation, those types of things that would drive economic activity. That's maybe where the wildcard risks lie.

Manuel Navas

Okay. That's more exogenous I appreciate that. Can you dive a little bit more into the DDA trends you had? I don't think it's come up just how strong the noninterest-bearing growth was. What kind of drove that?
Is it just because the C&I was up at the same time? Any more color on that in general?

Kathryn Bailey

Yes. I mean I think we have continued as an institution to I encourage the sales force to not only look for the loans, but also to actively engage their client in the deposit conversation too. And I think we're seeing that benefit come through in the deposit base. And that holds true for the retail franchise as well as the commercial part of the business. So I think that's what you're seeing come through in the growth in the fourth quarter.

Manuel Navas

And that growth -- so you're saying that, that some of that growth was retail DDA as well as operating accounts?

Kathryn Bailey

Correct.

Manuel Navas

Awesome. And if you're getting that 4% to 6% loan growth, do you kind of expect deposits to keep up? Or will there be a little bit of a tick higher in the loan-to-cost ratio?

Kathryn Bailey

I think we saw 6% deposit growth in '24. I think that beat our expectations a little bit. I think, generally speaking, we expect deposit growth of 3% a year. So I'd expect we would see some borrowings put on to help -- potentially with the loan growth.

Manuel Navas

Okay, that's helpful. Thank you. I appreciate the commentary.

Operator

Daniel Cardenas, Janney Montgomery Scott.

Dan Cardenas

Good morning guys.

Kathryn Bailey

Hi Dan.

Dan Cardenas

Most of my questions have been asked and answered. But just maybe a little bit of cleanup. As I look at the charge-off levels in the fourth quarter, how much of that was covered by specific reserves versus what was taken in the quarter in terms of provisions?

Kathryn Bailey

Yes, about $3 million was covered with specific reserves that we had up at [9.30] that were then charged off in the fourth quarter.

Dan Cardenas

And those are all related to the leasing portfolio?

Kathryn Bailey

Correct.

Dan Cardenas

And how difficult would it be to kind of build that back up? I know you kind of said that you want your reserve to loan level, maybe a little bit higher than where it is at 1%. But -- do you kind of envision -- do you envision a scenario where we can see that maybe closer to 1.10% by the end of the year?

Tyler Wilcox

I would say no, Dan. I'd say we've put up some very specific reserves putting on some qualitative factors relative to specifically the small-ticket leasing. And our analysis thus far has been what enabled us to be able to be predictive on the fourth quarter and where we think we're going in the subsequent quarters. So I think we have a high degree of confidence in our kind of internal analysis of that book and our expectation of how the charge-offs will potentially cascade throughout the year. And I think fourth quarter really proved out.

Kathryn Bailey

Yes. And I would just add that we have been, in my opinion, reserving for the small-ticket leasing at historic levels throughout the process. So again, we elevated that with some specific reserves that Q3 and earlier in the year. So I don't expect a big increase related to the small ticket leasing in the reserve as we go forward. I think we're we would -- we've been carrying it in that 4% to 5% historic rate, which we quoted in the release.
Again, another factor that plays into the reserve, as you're well aware, under (inaudible) is the economic forecast. So that looks, in my opinion, pretty good right now. To the extent that moves meaningfully against us, that reserve ratio could sway meaningfully in the quarter that, that happens. But I don't have any reason to believe that will happen in '25, but again, it's kind of data dependent.

Dan Cardenas

Got it. Okay. And then just in terms of talent acquisitions, as you noted, I mean, there have been a bit of a pickup in the M&A activity here recently. Have you seen that kind of result into additional discussion with teams or individuals in markets that you're either in or want to be in?

Tyler Wilcox

Yes, Dan, I would say less with teams. We have historically not done kind of major lift outs, but we are as active on the talent acquisition front as we are on the general acquisition front. And I would say, for example, in the past few quarters, we've added 9 additional commercial bankers across kind of what we view as our core footprints of Ohio and particularly in Kentucky and Southern Ohio kind of in the Cincinnati, basically the Columbus to Louisville corridor, if you want to call it that and optimistic about kind of their future production, which is kind of baked into our 2025 numbers.
So yes, we will continue to be opportunistic with those hires. We're also investing in our leasing businesses. We're investing in all of our lending businesses indirect to expand that network as well. And so we are kind of all in on talent acquisition and will continue to be because that ultimately drives our results.

Dan Cardenas

That makes sense. All right, great. That's all I have for right now. Thank you guys.

Tyler Wilcox

Thank you, Dan.

Kathryn Bailey

Thank you Dan.

Operator

At this time, there are no further questions. Sir, do you have any closing remarks?

Tyler Wilcox

I am disappointed that none of the analysts were interested in my opinion on the Buckeye's result. But with that, I'll say I want to thank everyone for joining our call this morning. Please remember that our earnings release and a webcast of this call, including our earnings conference call presentation will be archived at peoplesbancorp.com under the Investor Relations section. Thank you for your time, and have a great day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.